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INVESTORS WOULD BE WISE TO LET THE SMOKE clear after
Citigroup's
c -0.1828761429758936%Citigroup Inc.U.S.: NYSEUSD60.04
-0.11-0.1828761429758936%
/Date(1481320851170-0600)/
Volume (Delayed 15m)
:
22746822AFTER HOURSUSD60.07
0.030.049966688874083946%
Volume (Delayed 15m)
:
58119
P/E Ratio
13.039984362443802Market Cap
171411262673.538
Dividend Yield
1.0659560293137909% Rev. per Employee
368706More quote details and news »cinYour ValueYour ChangeShort position
near-implosion before putting more money into its shares. Yes, they are cheaper than dirt at $8.29 apiece, especially if you believe, as some do, that Citi (ticker: C) could earn more than $2 a share down the road. But the banking giant still has to prove it can survive, not to mention thrive, after calling on the federal government last week for billions more in emergency funding.

Even after its nosedive, Citigroup may still be worth a bet.
Stephen Hilger/Bloomberg News

The U.S. Treasury is helping to recapitalize Citi, which was forced to write down a staggering $44 billion since the third quarter of 2007, mostly tied to soured investments in mortgage-related debt. As part of the rescue plan, the Treasury will invest $20 billion in Citi preferred stock via the Troubled Asset Relief Program, or TARP. Citi's shares have rallied strongly, from a Nov. 21 low of $3.77, on news of the feds' fresh infusion.

Some observers say Citi should sell all or parts of its empire. In a favorable cover story about the bank more than two years ago, Barron's raised the possibility of splitting up its various parts (see "Fixing Citi," July 3, 2006). Of course, that was then, before anyone knew Citi's profits would turn to losses amid the biggest financial crisis of modern times.

Among Citi's current fans is Anton Schutz, manager of the Burnham Financial Services Fund (BURKX). "Even with all the dilution, the company is capable of earning $2.50 to $3 a share in normal times," he says.

"I'm not expecting normal times any time soon," Schutz quickly adds, but notes that the bank is well capitalized and that CEO Vikram Pandit has a good team.

David Ellison, manager of the FBR Large Cap Financial Fund (FBRFX), wants to see a "bona fide recapitalization" of the bank, with "real capital from the public...and with no government help," before investing in its shares. He doesn't think a break-up is necessary; re-establishing trust is.

Investors still keen to invest, despite Citi's formidable challenges, might do best to pick up call options, which confer the right to buy a security at a specified price, by a specified date. As of Nov. 26, the premium for a January 2010 call with a strike price of $10 was around $2.65. Although that's a hefty 32% of Citi's share price, it's a whole lot cheaper than $8.29.

-- Lawrence C. Strauss

Stamp Expert Could Face Indictment

SPANISH PROSECUTORS HAVE ASKED THE U.S. to indict stamp expert Greg Manning for fraud. Manning, the founder of a New Jersey-based collectibles firm, has been implicated in an alleged stamp-investment fraud that rocked Spain two years ago and has been the subject of numerous stories in Barron's.

Indictments continue to flow from a stamp scandal that rocked Spain in '06.
Courtesy of El Economista

In May 2006 Spanish police raided and closed the headquarters of Afinsa Bienes Tangibles, then the world's third-largest collectibles company after Sotheby's and Christie's. Top executives of Afinsa were arrested and are now on trial for running a "no-loss" stamp-investment program that ultimately produced catastrophic losses for Spanish pensioners and others who had been persuaded to invest retirement funds in what prosecutors alleged to be a Ponzi scheme.

Although most of the executives and managers involved in the program were Spanish, Manning played a pivotal role in supplying the stamps, prosecutors said. His Nasdaq-listed Greg Manning Auctions International, or GMAI, was taken over by Afinsa in 2003 and subsequently renamed Escala. Prosecutors claim it was the main conduit through which stamps of relatively low quality, including some that were worthless, were channeled to Afinsa for resale at inflated values.

Barron's first raised questions about the nature of the relationship between GMAI and Afinsa in 2004 (see "Return to Sender," Sept. 27, 2004), and took a skeptical look the next year at Afinsa's stamp-investment program ("Sticky Situation," May 23, 2005), which not only promised investors returns of 6% to 12%, but guaranteed repayment of initial investment capital. As Barron's reported, returns were paid by new money coming into the investment program. In September of 2005, Spain began its investigation of Afinsa and Escala, which led to the May 2006 arrests.

Spanish prosecutors say Manning has always been a key suspect in an ongoing criminal investigation. The Spanish government is investigating Afinsa for fraud, money-laundering and the falsification of documents. Escala's shares plummeted after the 2006 raid by Spanish police, and today trade on the pink sheets under the ticker ESCL.PK for around two dollars.

Manning resigned from Escala's presidency in 2005 and was fired as a consultant in April 2007 for "ethical breaches," according to a company filing. He is now being sued by his former employer for $40 million for, among other things, "unjust enrichment," and he is counter-suing for $34 million for "wrongful termination." Escala, meanwhile, recently agreed to settle a class-action lawsuit without admitting wrongdoing, and will establish a fund to reimburse holders for losses suffered when the stock collapsed.

Manning's woes may mushroom. Barron's has learned Spanish prosecutors have sent a letter to the U.S. Justice Department's office of international affairs asking it to begin indictment proceedings against him. Under a pact agreed to by the two countries in 1999, Spain has the right to seek indictments in the U.S. of American nationals suspected of committing crimes against Spanish interests.

"It's not clear whether we will go to America or have to bring him to Spain, but we want to see him indicted for fraud," says Alejandro Luzon Canovas, a special prosecutor in the anti-corruption office in Madrid that is heading the criminal case against Afinsa defendants. Manning could not be reached for comment.

Although Luzon would not outline the case against the 62-year-old Manning, some details of a "summons" prosecutors filed earlier this year with Madrid's National Court of Justice, asking the court to forward the indictment request to U.S. authorities, were disclosed recently by the Spanish online financial-news Website www.bolsacinco, and made available to Barron's by its editor, Conchas Rubio.

In his report, Luzon claimed Manning "was fully aware of the fraud that was committed against the investors that involved supplying stamps of very little value" and that "he decisively cooperated in the fraud...committed by Afinsa."

The summons states Manning arranged the purchase of various collections of cheap stamps and then prepared them for sale to Afinsa clients for more than $128 million, which prosecutors calculate was 831 times greater than Manning's original cost. For that reason, Luzon's report says, Manning was an "indispensable collaborator" in channeling the funds that in his view fostered the alleged fraud.

Luzon says he has provided his counterparts in the U.S. with details of these and other charges, and is waiting for a reply. A Justice Dept. spokesman refused to comment, citing department policy.